Bitcoin and other cryptocurrencies solve the problem of making payments in an environment where trust is broken — but it’s unclear whether that’s a dilemma that needs to be solved, Federal Reserve of New York economists wrote in a blog post.
“If we lived in a dystopian world without trust, Bitcoin might dominate existing payment methods,” Martin said. “But in this world, where people do tend to trust financial institutions to handle payments and central banks to maintain the value of money it seems unlikely that bitcoin could ever be as convenient as existing payment means.”
Solving the issue of trust comes at the expense of convenience and scalability, as the process of picking random validators so that the network can verify transactions instead of financial institutions, “takes time, is expensive, and consumes tremendous amounts of energy,” Martin said. Another issue is extreme volatility, which also makes them less useful as currencies, he said.
Eulogy made by